A model of shadow banking
By: Nicola Gennaioli, Andrei Shleifer, Robert W. Vishny
Contributors: Shleifer, Andrei; Vishny, Robert W. (Robert Ward); National Bureau of Economic Research
Series: NBER working paper series -- working paper 17115; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17115.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We present a model of shadow banking in which financial intermediaries originate and trade loans, assemble these loans into diversified portfolios, and then finance these portfolios externally with riskless debt.  In this model: i) outside investor wealth drives the demand for riskless debt and indirectly for securitization, ii) intermediary assets and leverage move together as in Adrian and Shin (2010), and iii) intermediaries increase their exposure to systematic risk as they reduce their idiosyncratic risk through diversification, as in Acharya, Schnabl, and Suarez (2010).  Under rational expectations, the shadow banking system is stable and improves welfare.  When investors and intermediaries neglect tail risks, however, the expansion of risky lending and the concentration of risks in the intermediaries create financial fragility and fluctuations in liquidity over time"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 8/30/2011.

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